The San Francisco-based trading platform announced Tuesday that it would prevent customers from placing new margin trades beginning at 2 p.m. PT (22:00 UTC) on Wednesday, while simultaneously canceling any open limit orders.
Coinbase will end the margin trading feature entirely next month, once existing positions expire. When customers trade on margin, theyâ€™re effectively borrowing funds from the exchange or broker to cover the cost of an investment in an asset such as a security or a cryptocurrency. This allows traders to leverage their positions, meaning profits in multiples of what they would have otherwise received.
The exchange pointed to â€œrecent guidanceâ€ from the CFTC, referring to the Commissionâ€™s March guidance around â€œactual deliveryâ€ of digital assets as the reason for this decision, but didnâ€™t specify which aspect of the guidance led to the move.
That guidance, which has its roots in a 2016 enforcement action against Bitfinex, sought to provide rules around when a customer can be said to have legally taken control of a cryptocurrency, including when the customer acquires the crypto through a margin or leveraged product.
Assets purchased through leverage or a margin contract cannot be liquidated, according to the guidance.